Global Themes

The U.S. dollar remained in demand as it broke higher ground overnight. The dollar’s rally since April, powered by a strong U.S. economy and the Federal Reserve raising lending rates, received an octane boost in the wake of Turkey’s currency crisis which spurred a flight to safer bets. On Wednesday, the dollar climbed to fresh 13-month highs against the euro and sterling and favored multiweek and multimonth highs versus its Canadian and Australian counterparts, respectively. While Turkey’s lira steadied for a second straight day, no one is signaling the all-clear with tensions running high between Washington and Ankara. A fear that Turkey’s troubles could spread to other regions, like the euro zone, continued to weigh on markets. Emerging markets were back under pressure, more evidence that the market is fearful of things getting worse before they get better in Turkey. Turkey remains in focus, along with U.S. data on the economy-driving consumer.

USD

The dollar index kept aloft at its highest level in more than a year, finding support from better than expected news on the U.S. economy. Retail sales jumped 0.5% in July which topped forecasts of 0.1% increase and boded well for strong growth during the third quarter. Upside to the dollar was only modest as retail sales growth in June was more than halved to a 0.2% increase. Dollar sentiment remains rosy thanks to America’s strong economy, which has the Fed on track to raise rates for a third time this year in September, and the diplomatic discord between Washington and Ankara that’s sparked a flight to ultra-safe assets.

EUR

The euro accumulated more losses Wednesday that drove it to new June 2017 lows against the greenback. The euro has been dazed by the Turkish crisis which poses potential contagion and exposure risks to banks in the euro zone. Turkey’s crisis has added to euro headwinds that also include how the 19-nation’s economy isn’t expected to be healthy enough to allow the European Central Bank to raise borrowing rates from zero for at least another year.

GBP

Sterling slumped to new June 2017 lows against the greenback as Britain’s economy continued to take a back seat to market risk factors like Turkey and Brexit. Data today showed that U.K. inflation rose for the first time all year when consumer prices increased by 2.5% annually in July from 2.4%. Inflation continues to squeeze consumers whose rate of pay slowed to 2.4% in June, the weakest in nine months. From a Bank of England perspective, officials seem unlikely to step up the pace of rate increases until pay rises and allows consumers to better tolerate higher borrowing rates. Meanwhile, tepid pay growth suggests a low likelihood of the BOE raising rates further this year.

CAD

Canada’s dollar flirted with three-week lows Wednesday as oil prices shed a percent to below $67 and the greenback garnered safe haven flows from geopolitical risk in Turkey. Downside for the loonie has proven somewhat modest as bullish north of the border data suggest a still open door for the Bank of Canada to raise interest rates a third time this year. Unemployment in Canada matched a four-decade low of 5.8% which bodes well for consumer spending and the wider economy.

TRY

The historic plunge in the Turkish lira abated over the last 24 hours, though no one is signaling the all-clear. The lira has found a tentative footing ahead of a planned conference call by Turkey’s finance minister with international investors Thursday that markets hope might help to lower the temperature of the crisis. Turkey’s troubles stem from a host of factors but mainly due to the president exerting increasing influence over the economy and the perception that Turkey’s central bank isn’t independent of political interference. Turkey jitters weighed on emerging markets, keeping the Mexican peso pinned near July lows and the South African rand close to two-year lows.  

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